The market for logistic software for transporting hazardous wastes is an example of a niche market arising from a heavily regulated industry. In fact, this niche market is actually the result of a number of heavily regulated industries; for example:

Oil and Gas Exploration

Energy Production (Nuclear Power)

Health Care

Environmental Management

Transportation

Each of these industries produces waste that is hazardous to human health; therefore, a unique set of policies and procedures — specific to heavily regulated industries — accompanies the normal set of required operations for a typical business in this category. When we Googled the keywords “logistic management software hazardous waste” when came on the web page of a business that is, by no means, a smaller ISV, but, nevertheless, one that certainly started out that way: Information Handling Systems (IHS). IHS, which is now a public company with fiscal 2012 sales of $1.53B and EBITDA of $363.32M.

IHS was founded in 1959 by Richard O’Brien to address a highly specialized, niche market: “as a provider of product catalog databases on
microfim for aerospace engineers” (quoted from the IHS web site) Note how the original business plan included a very tight focus on a highly specific (in other words limited, clearly defined) set of requirements for a heavily regulated industry — aerospace.

In 1967 IHS, itself, was acquired by another firm, Indian Head Company, ” . . . founded in 1953, a broadly diversified company in metal and automotive products, producing glass containers, information technology systems and a wide variety of specialty textiles.” (quoted from the IHS web site). From 1967 forward IHS has grown through a series of acquisition of other businesses, all of which were dedicated on specific niche markets that contributed to the enormous success that this company has achieved.

We are not presuming that every small ISV that successfully build a solution for a niche market will enjoy the success that IHS has enjoyed, but, nevertheless, we do think it makes sense in 2013 for smaller ISVs to consider adopting a contrarian marketing plan, meaning one that eschews the commodity markets that characterize most software development requirements, as well as the push to deliver all sorts of software via a SaaS business model, in lieu of a realistic focus on identifying very promising, albeit limited opportunities — in other words, niche markets.

In all likelihood, most competitors are looking other ways, towards SaaS delivery models, or towards simply provisioning development talent to an enterprise market. Therefore, a smaller ISV may have a glimmer of opportunity to succeed following a model that worked for IHS back in 1959.